Features

Preserve the Charitable Deduction From Income And Encourage A Future of Giving

May 06, 2012

M.S. Candidate in Fundraising and Grantmaking, New York University

Editorial Board, PhilanthropyNYU

Helen Couniakis has over twelve years of leadership experience in the corporate sector and has now brought her skills and knowledge to the non-profit sector. She is in her second semester at New York University and serves on the Editorial Board of PhilanthropyNYU. Helen has worked with the Ronald McDonald House of NY, the Sutton Area Community Board (SAC) and serves on the Junior Board of Associates of Uniting Against Lung Cancer. She also serves on the NYU Student Council and is a member of the NYU Africa and Philanthropy Interest Group. Helen is fluent in Greek and her interest lies in pediatric oncology development and Greek-American philanthropy. A former White House Intern, Helen holds a B.A. from Hofstra University in Political Science and Business Law.

The issue of taxes has been a topic of political debate for years. Mega foundations first appeared in the United States as a way for the super wealthy such as the Rockefellers and the Fords to avoid paying exorbitant amounts of taxes on their incomes. This, in turn, helped the nonprofit sector by providing a vast amount of wealth to the programs that the foundations supported and funded. Today, the nonprofit sector relies heavily on grants from foundations, governments and of course, the public. The ongoing concern is how nonprofits will continue to receive funds in the future and what changes (if any) to the tax policy will mean for the millions of nonprofit organizations in this sector. Will the next generation of givers be affected by any changes to the tax policy? We must do everything we can to encourage the next generation of givers. With growing global issues it is important, now more than ever, to instill philanthropy in our children and groom the next generation of donors.

Charitable giving is a crucial element in the survival of the nonprofit sector. Without this giving, there would be a larger competition for government funding, and ultimately, not enough funding to help all those in need. There are various motivating factors as to why individuals and corporations give. The reasons range from religious beliefs, leaving behind a legacy, gratitude for one’s status in life (i.e. giving to one’s alma mater), recognition, values, tax benefits, etc. While tax benefits may not be a strong motivational factor for most, it still is important to some, and it undeniably plays a role in the nonprofit sector.

There is an ongoing debate as to whether the charitable deduction from income should be kept in place or removed from our tax laws. Currently, itemized deductions are capped depending on an individual’s adjusted gross income. President Barack Obama has repeatedly attempted to limit the charitable deduction that wealthy donors receive at a 28% cap for couples with a combined income greater than $250,000, and individuals with incomes greater than $200,000. The nonprofit sector vehemently opposes this cap and argues that it will devastate the sector’s fundraising efforts.

Proponents of limiting charitable tax deductions argue that it is a way of preventing individuals from trying to circumvent the tax system by not having to pay taxes on all of their yearly income. They also argue that limiting the amount of the tax deductions will help the government reduce its deficit by billions of dollars in the next ten years. This is appealing since there have been many budget cuts to various government projects in recent years.

On the other hand, opponents of the limitation on charitable tax deductions may ask the following questions: Why is the government trying to dictate how much an individual is giving to charity? If I as a donor want to give half of my income to charities that I feel a strong connection to, why am I not allowed to receive the tax benefit for that? They argue that donations will ultimately help the government because charities will rely more on donors and less on seeking government grants and funding. Therefore, the government has an incentive not to limit the cap at 28%. In addition, the 28% deduction for those with incomes of $200,000 is not substantial when looking at individuals with greater incomes. If the wealthy have less discretionary income to give to charities, they may not give as much and may also be forced to donate to fewer charities in the future. However, there should be some regulation so as to try and prevent people from circumventing the system in such a way as to avoid paying taxes by contributing extraordinary amounts to their own foundations.

As noted above, the charitable deduction issue is an enormous one that will no doubt continue to be a big issue of debate especially during this upcoming election. Both sides in this issue have valid points. Where one decides depends on where one’s interests are. A wealthy donor will likely rally around the nonprofit sector’s argument that the deduction is crucial to funding success and should be upheld. Opponents of this issue will argue that there should be a cap on the amount that is deducted because it helps prevent fraud and increases government revenue. I believe that donors should be given the tax deduction benefit. The most important reason for this is that in the end, the charities receive the funds that they desperately need. Does it really matter to a sick child whether the donor received a tax benefit or not? The only thing the child cares about is whether they were able to participate in a fun program that took them away from the reality of their illness. That is what lawmakers and opponents to the tax deduction should look at. We should focus on maintaining the inflow of charitable donations from current donors and cultivating new relationships with young donors of the future. We should worry less about a tax deduction benefit and more on how we can engage today’s youth and turn them into tomorrow’s donors. Overall, the government should be pleased that if more deductions are given then they will not have to spend more on funding these programs. The nonprofit sector will be able to sustain them with the private funding they receive.